Things to Read on the Afternoon of January 12, 2015
Must- and Shall-Reads:
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The Depression’s Unheeded Lessons: A Review of Barry Eichengreen’s Hall of Mirrors - :
World Income Distribution: 1820, 1970, 2000
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On the Monetary Offset Argument):
“A number of us are highly critical of moving to austerity so early in the recovery from the Great Recession. Market Monetarists… argue… the ZLB is not a problem…. I want to make a couple of observations. First, MM often [wrongly] imagine that they invented this offset argument…. Second, if you… want to take the MM argument seriously, you have to believe that monetary policy is [as] capable of offsetting the impact of austerity as much now as later… [and] that this is actually what monetary policy makers will do. If you believe the first, but are not sure about the second, then fiscal consolidation now is a mistake…. [This] exposes how weak the MM argument is at the ZLB…. Central banks at the moment are inflation targeting, and are likely to continue to do so, so enacting fiscal contraction in the hope that they might change is highly irresponsible. So the MM argument that the ZLB does not matter has to rely on Quantitative Easing (QE). But here there is a basic problem that MM has never to my knowledge answered. Just how much QE do you do to offset any fiscal contraction? We have no real idea, because we have so little experience…”
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Should Republicans Ignore Income Inequality? | National Review Online:
“Inequality has increased across advanced economies. Macro factors such as globalization and technology deserve most — but maybe not all — of the ‘blame.’ Big Government loves to pick winners and losers in the private sector. Some lucky ducks owe their place in the 1 percent or 0.1 percent or 0.01 percent to federal favoritism. Conservatives shouldn’t mind at all when value-creating innovators and entrepreneurs strike it rich while crony capitalists do not. The precious tax breaks and subsidies that go to rent seekers, such as those in the agriculture and alternative-energy sectors, should get the ax. Sorry, Big Sugar and Big Solar…”
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Non-Chart of the Day: Where’s the Austerity? | Mother Jones:
“Tyler Cowen… [and] Angus…. ‘Either austerity means nominal cuts and we never had any of it, or austerity means cuts relative to trend and we are still savagely in its grasp.’ Oh come on…. Let’s take a look at this chart done right… real per capita government expenditures…. This is what austerity looks like: a drop in government expenditures. For a little while, in 2009 and 2010, stimulus spending partially offset… but by the third quarter of 2010 the stimulus had run its course…. If you run this chart back for 50 years you’ll never see anything like it…. Finally, in 2014, the spending decline stops. Austerity is over, and we even start to see a small uptick. At the same time, the economy starts to pick up. This is not bulletproof evidence that austerity is bad for the economy, or that government spending helps it. But it’s certainly consistent with the hypothesis, and it’s really not hard to see.”
Should Be Aware of:
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I read the French far-right party’s platform, and it gets one big thing absolutely right:
“At some point, European leaders have to face up to the fact that it’s not all nuttiness and racism. Voters are turning to extreme parties because the mainstream parties have blundered into a years-long economic fiasco and they have no plan to end it…. The party’s founder — Marine Le Pen’s still-living father — was a fascist street-brawler as a youth, managed Jean-Louis Tixier-Vignancour’s Vichyite presidential campaign in 1965, and traffics in not-at-all-disguised racism. In its current incarnation, the Front advances a genuinely extreme view on immigration (a 95 percent reduction in legal immigration levels), promotes anti-Muslim politics under the guise of secularism, and clearly practices dog whistle politics intended to appeal to a racist constituency (hardly a unique tactic)…. In other respects, though, the party is not so extreme… hike military spending… build more prisons, discourage abortion, ban same-sex marriages, and ban affirmative action — fairly standard conservative ideas in the US. On finance, Le Pen sounds like Elizabeth Warren, calling for a separation of investment and commercial banking (Glass-Steagall rules, in US terms) and a financial transactions tax. They bemoan the privatization of public services. On the welfare state, they chart a third way. The (dubious) central premise seems to be that once you massively curtail legal and illegal immigration alike, affordability questions go out the window. Mothers of three or more children will secure earlier access to full social security benefits, family allowances will be raised, and more preschool funding provided. They claim (again, dubiously) that protectionist tariff policy will promote the re-industrialization of France…. But beyond this ideological grab-bag is a thoroughgoing and persuasive critique of European monetary arrangements… cite Milton Friedman as an authority on the idea that the Eurozone is not an optimal currency area… rightly say that the inability of Eurozone member states to conduct independent monetary policy ‘condemns the people to austerity plans that do nothing but exacerbate the crisis’… call for the Bank of France to print money to cover French budget deficits. That’s a step that could be dangerous in many scenarios, but given that France is currently experience negative inflation it seems well worth trying. There’s much to dislike in the National Front’s policy gestalt…. But the Europe stuff deserves an answer…. The Eurozone is fundamentally a political project rather than an economic one, but to succeed politically it needs to work economically. Right now it isn’t, and Le Pen’s brand of populist nationalism is a logical alternative…”